MBIA in Longest Slump Ever on Puerto Rico Default Concern
MBIA Inc. (MBI) fell for a 13th day, the bond insurer’s longest streak of declines since going public in 1987 amid concerns it faces losses tied to guarantees on Puerto Rico’s debt.
MBIA, based in Armonk, New York, tumbled as much as 5.8 percent before ending trading in New York down 3.5 percent at $9.65, the lowest since October. Bermuda-based competitor Assured Guaranty Ltd. (AGO) also extended a decline today, falling 1.7 percent to $22.71, the lowest since February and the 11th drop in 12 days.
MBIA, with $4.8 billion of net exposure, and Assured, with $5.3 billion across three units, are sinking on their Puerto Rico guarantees after surviving U.S. mortgage losses that toppled other bond insurers during the financial crisis. After lawmakers in the self-governing U.S. territory last month approved a bill allowing some public corporations to restructure debt, prices on the commonwealth’s bonds have dropped to record lows.
The law “creates a path for a possible distressed restructuring for certain government-related enterprises and raises questions about Puerto Rico’s credit conditions and willingness to pay its debt,” Moody’s Investors Service analyst Stanislas Rouyer wrote in a report yesterday. “We view the probability of a Puerto Rico default as substantially more likely than we did several months ago.”
The exposure of MBIA’s National Public Finance Guarantee unit to the troubled Puerto Rico Electric Power Authority, the island’s main provider of electricity, equaled 46 percent of its qualified statutory capital as of March 31, according to Moody’s. The new law is “most imminently applicable” to Prepa, the ratings firm said. The utility said yesterday it had negotiated with creditors to push off repayment of bank loans until July 31.
Shares of the bond insurers could rise if the U.S. government offered assistance to Puerto Rico or if the new law were ruled unconstitutional, Mark Palmer, an analyst at BTIG LLC, wrote in a note to clients. The analyst cut MBIA shares last week to “neutral” from “buy,” a recommendation he had on the stock since at least 2011, according to data compiled by Bloomberg.
Funds controlled by billionaire Wilbur Ross sold 10.8 million of Assured shares at $24 each to end his stake in the company, according to a July 1 securities filing. Ross started backing the insurer in February 2008 as mortgage losses began hobbling the industry. Moody’s said the insurers’ ability to regain investor confidence may be damaged by losses in Puerto Rico.
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